We would like to take this opportunity to express our respect for the continuing efforts by the United States to improve the credibility and transparency of financial reports of corporations. We fully agree that credible financial reports are essential for appropriate functioning of the financial market. We understand that the Sarbanes-Oxley Act of 2002 was intended for this purpose.

However, this new act also has a significant influence on foreign issuers, including Japanese corporations, which are listed on stock exchanges in the United States. In this connection, we have been paying close attention to the SEC rules, especially the rules related to Section 301 of the Act, which stipulate the independence and responsibility of the audit committee.

We think that it is appropriate that the SEC rule concerning Section 301 includes an exemption from 10A-3(b)(1) and (b)(2) for foreign issuers which have a board of statutory auditors (10A3-(c)(2)). In order for this exemption to be really effective, requirements for the exemption have to be also accommodative. We are especially concerned with a requirement (c)(2)(A), because some Japanese corporations are established and construct governance systems based on the Japanese Commercial Code, but listed only in the United States. We think that (c)(2)(A) must be modified or deleted accordingly.

In addition, we think that an exemption should also be given to Japanese issuers which have an "audit committee-style" governance system, which is also permitted and stipulated in the Japanese Commercial Code. A corporation which chooses an "audit committee-style" governance system establishes a nominating committee, an audit committee and a compensation committee in the board of directors. We think that the additional exemption is indispensable because the requirements for an "audit committee-style" governance system, concerning independence and responsibilities relating to registered public accounting firms, are stipulated in the Japanese Commercial Code, and different requirements in the Sarbanes-Oxley Act of 2002 and its rules might discourage corporations from choosing this governance system even if they wish to do so. We also disagree with the notion of a "sunset" date, because there is no reason to believe that the exemption will become unnecessary within a definite period.

In the current global business environment, where worldwide interaction of business activities, fund-raising, etc. have been developing rapidly, and contribute to the growth and stability of the global economy, care should be taken to assure that new rules do not impede the cross-border activities of corporations. From this perspective, we think that appropriate accommodation must be provided for foreign issuers.

We appreciate the efforts of SEC to accommodate foreign issuers and the jurisdiction of their home countries. We hope that SEC will continue to pay further attention to the requests and explanations of foreign issuers, and establish appropriate rules.

Best regards,

Hajime Kuwata
Deputy Director General
Ministry of Economy, Trade and Industry
The Japanese Government